Where the Middle East meets East Asia: an economic analysis

The United Nations[2] classifies much of the Middle East, including the Gulf states, as Western Asia. That places this aggregated region very much at the bridging point between two distinct but fairly well identifiable worlds.

There is even a reasonably clear idea of a progression, in terms of global economic leadership, from the slowing, developed countries of the West, towards the speedier, developing powerhouses of the East, especially China and India.

To complement those sweeping generalizations, it might be said also that marketing the Gulf internationally very often involves citing its position at the crossroads of the globe. And that doesn’t seem out of order, either geographically or as regards the patterns of trade and investment.

In particular, with its time-honoured entrepot status, and ambitious commercialism, Dubai can lay just claim to that notion. Advancing the same spirit, its new airport boldly carries the epithet of World Central.

For some time now it has been a rousing theme that West Asia and East Asia should get together to capitalize on a new chapter in the evolution of the world economy, leaving the older world to provide dependable but nevertheless dwindling levels of business. The 21st century would be essentially Asian on the economic front; perhaps politically too.

Yet, while Japan is currently giving ample reminder of its fading glory, racked by its debt-laden and demographic concerns (choosing lately to prime the pump of stimulus once again), the twinned supernovas of China and India have also dimmed somewhat. Notably, the Indian rupee hit a record low against the US dollar last week.[3]

In both cases the core issue appears to be inherent failings in the pursuit of semi-capitalist strategies. The political powers that be are either too dirigiste or bureaucratic, or both. Opening up to the free market has been a process fraught with teething difficulties, besides the political resistance only to be expected. Command, control and reportedly no little corruption hold a certain sway.

China’s steps forward, despite the promise of rising from a low base with a very large population, have inevitably been gradual. Notwithstanding published growth rates of 8-10 per cent, inured structural restraints or biases remain in place. For example, over-investment relative to consumption is entrenched, following the mercantilist mentality of wanting to win the war of global trade, so as to reap the rewards of net earnings and ever-increasing purchasing power over the rest of the world.

Apart from engendering the global payments imbalances that some say were at the heart of the global financial crisis, such strategies have stored up trouble at home. Only in the past week or so, the Chinese authorities have applied a squeeze to the banking system and shadow entities that threaten another calamitous credit crunch in the wake of years of easy money.

China has essentially pursued a momentum model of economics, politically-guided, rather than one that is firmly-rooted in sound finance and market structures. In that sense, it may turn out to be merely a latecomer -- albeit grabbing the limelight and impressively capacious -- to the same, excessively liquid global party.

In research published this month, Naser Al Tamimi, Middle East analyst for European research institute ISPI[4], observed the bigger, tectonic transition in some depth.

Among a succession of awe-inspiring numbers, he mentioned that China is projected to overtake the US as the largest economy in purchasing power parity (PPP) terms by 2017, and that GCC-Asia trade has surged in recent years, from $480 billion in 2008 to $814 billion in 2012.

“The geopolitical landscape has changed,” he wrote, “refocusing the GCC’s attention eastward. Officials have increasingly seen the writing on China’s Great Wall.” Even so, “significant challenges” remain, not least as to a certain protectionism inhibiting free-trade agreements, and the competition to Gulf exports likely from the US.

Renowned economist George Magnus is another sceptical voice, echoing Paul Krugman of nearly twenty years ago. China’s extraordinary mobilization of resources cannot continue in the same way, he argued in a paper for the Centre for European Reform earlier this year. Its slowdown is partly cyclical; but some of it structural too. While admittedly “the re-orientation of business and commerce from the Atlantic to the Pacific will continue, we should not fall for the economic hyperbole. Past economic performance is no guide to the future.”

So, upon reading last week that China is stepping boldly into the Dubai real estate market, we might wonder if it’s truly the dawn of a new age of productive co-mingling, or another twist to an old story. After all, booming property has not been the greatest advert for sustainable economic development anywhere on the planet.

Simply, we just don’t live in remotely reliable circumstances these days, let alone looking ahead to the rest of the century. Instead, as the Chinese themselves have been known to say, we live in interesting times.